This matter was considered at a meeting in the Under-Secretary's office on June 10. Also present were Mr. Gray, President of Atomic Energy of Canada Limited, Mr. R.B. Bryce, Mr. Plumptre, Mr. Pollock and Mr. Crowe. Mr. Gray outlined the concern of Atomic Energy of Canada Limited about what might happen if the Indians tried to manufacture their own fuel rods for the reactor. The Canada-India Reactor Agreement of 1956 clearly indicates the intention of both governments (Article XI) that the fuel elements for the initial charge and continuing requirements of the reactor will be supplied by Canada save to the extent that India provides them from sources within India. Because of India's refusal to accept any safeguards on these elements no progress has been made, in spite of long negotiations, in implementing this Article. Mr. Gray said that on strictly technical grounds he thought it was essential for the reactor project to have fuel elements made in Canada. In spite of all their experience at Chalk River they still had difficulties with fuel elements for the NRX reactor and if any difficulty developed in India as a result of some defect in the fuel elements this would reflect on the entire reactor project and Canada would inevitably be blamed. At the present time India is apparently making efforts to get the fuel elements elsewhere or to fabricate them in India but Mr. Gray thought that they had not progressed too far in these alternative arrangements and that they would still be anxious to get the elements from Canada if the safeguards issue could be avoided. It would also be very much to India's financial advantage to get the fuel elements from Canada even if they were charged at full cost. (Although this is not envisaged in the CIR agreement it is possible that all or some part of the cost of the fuel elements would be charged against India's Colombo Plan allocation.) Mr. Gray said that the cost of the fuel elements would be in the order of $610,000 to $620,000, including transportation to Bombay.

2. Mr. Gray will be talking to Dr. Bhabha of India in London during the course of the next few days and it was agreed that he should take up with him one possible solution to the problem. This was a suggestion that India should lease the fuel elements from Canada. This would mean that the irradiated fuel elements when they are eventually removed from the reactor will be the property of the Canadian Government. It would then be possible for Dr. Bhabha to say that no safeguards or inspection are involved while we would have the substance of safeguards by virtue of our ownership of the spent fuel elements. It will be nearly four years before the first fuel elements are removed from the reactor and by that time the whole safe-guards question will probably have a very different aspect. Either there will be some agreed international system or there will be no safeguards at all. In the meantime we shall be able to complete the Canada-India reactor project with Canadian fuel rods and obtain what will amount to safeguards under cover of leasing arrangements which might be much less offensive to the Indians.

M.A. C[ROWE]